US pork and beef demand fattens up — and consumers chicken out

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Dive Brief:

Since trade wars are reducing exports, there are more hogs and cattle in the U.S., and prices are lower. Americans are eating more burgers, bacon and ribs as a result, according to Reuters.

Due to the lower prices, restaurants and retailers have been promoting pig and cattle based dishes over their poultry counterparts, and chicken producers have been hurting. Tyson Foods' operating income from chicken dropped 34% lower than last year, while beef rose 14% in the same time frame.

Ongoing trade conflicts have led to higher tariffs and more production has stayed in the American market. This has driven prices to lower levels throughout the supply chain — meaning the potential for better margins for restaurants and grocery stores.

Dive Insight:

International trade and tariff disputes sent meat markets into a tailspin. Major meat producers are now navigating somewhat unfamiliar territory and negotiating new market dynamics, while attempting to maintain bottom lines.

For some, the lower prices have been good for business and brought in more consumers to buy pork and beef products. In its most recent earnings call, Kraft Heinz executives said they cut bacon prices as pork belly prices decreased. Restaurants like fast food chain Wendy’s are taking advantage of the prices as well. Wendy's introduced 54 new hamburgers in the month of September, according to Reuters, and it gave away free hamburgers through a promotion throughout that month. Additionally, Ahold Delhaize's stores have launched campaigns and offered deals for pork. The supermarket giant recently broke ground on a new packaging plant for pork and beef to prepare the meat for meal items.

Though people are buying beef and pork at higher rates, some companies are struggling in the new climate. Producers have had difficulty balancing the shifting dynamics –– and chicken portfolios are among the hardest hit. In August, Hormel Foods said it expects a 6 cent drop in profit per share and Sanderson Farms has faced a huge oversupply of chicken this year. In the past quarter, Tyson reported an average price drop of 4.1% alongside a decline in company sales. Much of the downturn is because of a decrease in demand.

Many companies are scrambling to diversify their product lines in an attempt to keep up with the shift in market dynamics. Pilgrim’s Pride sees a more diverse set of offerings, like prepared foods and prepackaged options, as a way to keep market prices stable. Tyson has also explored expansion and diversification. The company opened a facility in Tennessee last year, and has made upgrades to existing facilities at significant capital costs. And Foster Farms recently launched Bold Bites, a line of chicken snacks.

While chicken prices drop and consumption trends change, overall Americans do still eat more chicken than either pork or beef — which is why companies like Foster Farms, Costco and Sanderson Farms have also pushed to open new facilities and expand capacity.

Whether or not the new facilities with multi-million dollar price tags are enough to bolster large companies like Tyson in an unpredictable international trade climate remains unclear. The proposed new deal between the United States, Mexico and Canada could ease some pressures, but China will continue to hold significant sway in what happens.

Regardless, companies are likely to continue to get creative and explore new products and strategies for reaching consumers. As long as pork and beef prices remain low, the market will likely continue to squeeze chicken producers. Nevertheless, Tyson CEO Noel White said in a recent earnings call that he’s hopeful for demand to turn around — especially for the company's value-added products.